LNG markets not big enough yet to support commodity exchanges

Updated 7:36 am, Thursday, March 8, 2018

Construction at the Cheniere Liquid Natural Gas plant is almost completed in Portland. The company has made a deal to to ship 1.2 million tons of LNG a year to China.

Construction at the Cheniere Liquid Natural Gas plant is almost completed in Portland. The company has made a deal to to ship 1.2 million tons of LNG a year to China.

Photo: JERRY LARA

LNG markets not big enough yet to support commodity exchanges

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The price of oil along with coffee, cotton and other commodities is relatively easy to monitor through established exchanges like the New York Mercantile Exchange

But liquefied natural gas, which is coming on the market in increasing supply, doesn't have the same transparency of pricing because there isn't a dominant exchange that can provide spot prices or futures contract prices.

"It won't happen overnight," Andrew Walker, vice president of strategy for Chenier Energy, which builds and operates LNG terminals including a giant terminal along Gulf Coast near the Texas-Louisiana border, during a panel discussion on emerging gas trading hubs at CERAWeek by IHS Markit.

While buyers and sellers may be eager to create a more transparent pricing system, there still isn't enough trading volume of liquefied natural gas to create an exchange like the New York Mercantile. Instead, sales of liquefied natural gas are still largely negotiated on a contract by contract basis, which means prices are largely hidden from potential buyers and sellers.

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They are designed to protect customers and investors, making the financial markets more transparent. New EU rules, called ‘MiFID II,’ have been brought in – forcing banks and traders to report detailed information on trillions of euros of transactions.
“There are some pretty strong powers that can be used. The question of course will be whether regulators will use them, will be aggressive enough in cracking down on irresponsible actors on financial markets,” questioned Marc-Olivier Herman, EU Economic Justice Lead for Oxfam.
The financial industry has had to make big changes to adopt the new rules – which are late coming into force because of how complex they are.
“Banks have made many investments and efforts to comply with the new rules,” Isabelle Marchand, from the Belgian Financial Sector Federation FEBELFIN, told Euronews.
“They have made changes to their IT systems, they’ve had to train employees, had to change products, documents. So, it comes with a certain cost. But the main objective is to protect customers and to increase the investor protection. So, we support this objective.”
Regulators had to issue eleventh-hour guidance to avoid trading freezes. Commentators say they expect investors to hold off on large trades until they have a clearer idea of the impact of the reforms.

Media: Euronews

Abundant supplies of liquefied natural gas are a relatively new phenomenon and to establish a trading system, pipelines, processing plants and terminals must be built to ship the gas in and out, said Hadi Hallouche, head of natural gas, LNG, Naphtha and concentrates trading for Trafigura Group, a commodities trading company.

He pointed to LNG export terminals along the Gulf Coast as evidence the infrastructure is coming on line.